Starting a private pension

Reader18

I'm 61 and in receipt of a public sector pension.  I live very frugally so could afford to pay into a private pension as I think I would get tax relief and since the Chancellor abolished the life time allowance limit this seems a wise option to consider.  I could probably afford to save around 5k per annum.  However I am confused as to the 'money purchase annual allowance' works and what the limits are.  If there is any pension expert that can help, I would really appreciate the advice. 

Brie

 Am I correct in thinking that the public sector pension is a defined benefit one?  I don't believe those have any effect on the MPAA.  But even if it did you would still get tax relief on the first £4k you put in to it - I believe.  An  better  actual expert will likely be along shortly.....

Steve_666_

The MPAA is now 10K per annum, so 5K is not an issue. However, for it to be triggered you would have to have drawn from a taxable part of a DC pension, taking just the TFLS from a DC is fine. Guessing a public sector pension is a DB, so its not applicable, nor is an annuity from a DC pension. Any contribution above 2880 per year requires you to have earned  at least this amount (the contribution) as income from work.

xylophone

Assuming that you have no relevant earnings

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm044100#earnings

 in your situation (in receipt of income from DB not DC pension),you are limited as to tax relieved contributions not by the MPAA but by the "basic amount" as indicated in link above.

You may open a personal pension/SIPP and (up to age 75) contribute up to £2880 per annum and the pension provider will claim tax relief of up to £720 and add it to your pot.

Marcon

Reader18 said:

I'm 61 and in receipt of a public sector pension.  I live very frugally so could afford to pay into a private pension as I think I would get tax relief and since the Chancellor abolished the life time allowance limit this seems a wise option to consider.  I could probably afford to save around 5k per annum.  However I am confused as to the 'money purchase annual allowance' works and what the limits are.  If there is any pension expert that can help, I would really appreciate the advice. 

If the LTA was of concern to you, then presumably you are on a very high public sector pension and pay higher rate tax - a position which will be exacerbated when you start drawing your state pension.

Although a quarter of any personal pension pot will be tax free, the remainder will be taxed at your marginal rate. Given that income from an ISA is tax free (albeit there's no tax relief on contributions to an ISA), would that in fact be a better option in your particular circumstances - or possibly pay £2,880 to a personal pension and the balance to an ISA?

Albermarle

Basically you can not add more gross ( including tax relief) than your gross earnings per tax year ( Pension income does not count) If you have no relevant income, you can add max £2880 to which £720 tax relief will be added.

[Deleted User]

Hopefully you are not being frugal to the point of not enjoying your retirement. What are you aiming to achieve by starting a private pension? I'm just being curious.

Reader18

A belated thank you to everyone who replied. I was mainly interested in this from an inheritance pov. Thanks again.